8 do’s and don’ts for fighting foreclosure

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In the beginning of the foreclosure process, homeowners can still save money, their credit or their house if they act quickly. Even when declaring bankruptcy, avoiding a foreclosure on your credit report can salvage your ability to rebuild credit and buy another house, which makes the struggle against a possible foreclosure well worthwhile.

1. Sell the property: If you can find a buyer before the house is auctioned, you can sell it and keep whatever equity still exists.

2. Work out a deal: Your lender may be willing to work with you, rather than lose money at a foreclosure sale.

3. File Chapter 7 bankruptcy: If you can’t get caught up in time, you will not be able to keep the house — but you’ll generally be able to delay the foreclosure sale a month or even several months. Any remaining debt to the lender will be wiped out.

4. File Chapter 13 bankruptcy: If you can afford to make the future mortgage payments and the delinquent payments, too, file Chapter 13 bankruptcy. This is different than Chapter 7, in which assets are liquidated but debts are wiped clean. With Chapter 13, you keep your assets and, under court supervision, you repay your debts under a three-to-five-year plan.

5. Short sale/deed in lieu of foreclosure: A short sale takes place when the bank allows you to sell your property even though their mortgage won’t be paid. Be careful — the bank may allow the sale to go through, but only on the condition that you repay the deficiency. In a deed in lieu of foreclosure, the property is signed over to the bank in exchange for the bank giving up its rights against you. Why might a bank agree to either of these? Lenders spend $30,000 or more to foreclose on a property. Most lenders will consider these options to avoid foreclosure costs.

6. Walk away from the house: Pack your things and leave. The only issue remaining is whether your lender can sue you for any deficiency still owed after the sale, and that depends on the state you live in and the type of mortgage you have. You’d be wise to speak to an attorney before taking this step.

Any sale or transfer of property has tax consequences, including a foreclosure sale or a deed in lieu of foreclosure. Seeing an accountant is probably a good idea, as well.

Here are two options NOT to consider. In other words, they’re scams.

1. Signing over your property title to another company: Some companies say that after the mortgage is current they will re-sign the property back over to you. This rarely happens. Instead, the company is likely to pull out equity, not make any mortgage payments and allow the property to be foreclosed. You will not be able to save the property from future foreclosures because the property is no longer in your name.

2. High-interest second mortgage: When a property has equity, there are companies that will give you a second mortgage, in an amount as high as 70 percent of the equity available. The interest rate could be as high as 18 percent and the fees can be exorbitant. They are hoping that you’ll blow the money and default — which allows them to take the property from you.

When facing foreclosure, you have options, but you need to avoid the scams and act quickly if you want to have the best outcome. Delaying only makes foreclosure inevitable.

Courtesy of Bankrate.com

7 ways to avoid foreclosure scams

1. Don’t panic. Get detailed information about the deadlines you face in resolving your problems. Pay special attention to the date on which you would lose legal right to ownership.

2. Never sign a contract under pressure. Take your time, and consult a lawyer if possible.

3. Never sign away ownership via a quitclaim deed or other means without consulting a lawyer. Be especially suspicious of offers to lease back your home, in order to buy it back over time. These offers are weighted against you.

4. Never make your mortgage payments to anyone other than your lender. If you can’t pay, do not ignore warning letters from your lender; contact them instead.

5. Beware of any home-sale contract in which you are not formally released from liability for your mortgage. Make sure you know the rights you are giving up and that you agree to give them up.

6. Don’t sign anything with blank lines or spaces; information could be added later without your knowledge and consent.

7. If you do not speak English, never use a “rescuer’s” translator. Instead, insist on using your own translator.

Courtesy of Bankrate.com

3 types of foreclosure scams

1. Phantom help: The “rescuer” charges outrageous fees for light-duty phone calls or paperwork that the homeowner could easily do, none of which results in saving the home. This predatory scam gives homeowners a false sense of hope and prevents them from seeking qualified help.

2. The bailout: In this scam, the homeowner is deceived into signing over the title with the belief that he will be able to remain in the house as a renter and eventually buy it back over time. The terms of these scams are so onerous that the buy-back becomes impossible, the homeowner loses possession and the “rescuer” walks off with most or all of the equity.

3. The bait-and-switch: In this scam, the homeowners think they are signing documents to bring the mortgage current, but instead actually surrender their ownership. They usually don’t even know they’ve been scammed until they’re evicted.

Courtesy of Bankrate.com

Mortgage company won’t let us sell the house!

Dear Dave,
My wife and I recently moved, but we still own our old house out of state and owe about $122,000 on that mortgage. We took out a 125% mortgage to allow us to do debt consolidation and give us extra cash. We owe about $34,000 on that second mortgage, so now we owe $156,000 on the house and it’s only worth $150,000. We’ve been trying to sell it for six months with no luck. We’re still paying the mortgages on that house plus we have a mortgage on our house here in Michigan. We can’t do this much longer. What should we do?
From Chad

Dear Chad,
You’re now a living example of why you should NEVER take out a 125% mortgage under any circumstances!

Call the company that holds the second mortgage on your original house and tell them where you are. Let them know that you’re ready to hand them the keys unless they’re willing to work with you. Remind them that at the moment they have a partially-secured second mortgage for $34,000, of which around $10,000 or more is unsecured. You can make payments on a $34,000 loan, but you can’t make the payments of a $156,000 loan, which is the total of your two mortgages on that house.

Then, get them to admit that you don’t have a collateralized loan. They already know this, but it needs to come out of their mouth. Suggest that they allow you to sell this property for less than $156,000 and you will sign a note for the difference. For instance, if it sells for $136,000, the mortgage companies get all of the proceeds and you sign a note with them for $20,000. See if you can get them to sign a partial release under those circumstances.

If they’ll do that, you can reduce the price of the house and put an “Owner Desperate” sign in the yard to get that thing sold. You’ve got about a 50-50 chance of them accepting this kind of arrangement.

If your credit is still clean, another idea is going to a local credit union and borrowing $15,000 or $20,000 on a signature loan to pay down this second mortgage to the point where you can sell the house for enough to pay it all off. If you go that route, I wouldn’t send the money from the signature loan until you’re ready to pay off the house off altogether. That way you aren’t stuck with yet another payment until the house sells!
- Dave